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FAQs - Buyer

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What do I need to do first?

  • Step #1 – Find a Realtor that you trust.

  • Step #2 – Find a mortgage broker that you trust. Your Realtor will help you find the perfect home; your mortgage broker will help you find the perfect loan. Six months, or even a year, before you expect to buy a house is a great lead time to allow you to get to know the housing market, to figure out what elements are “must haves” or just simply “wanna haves”, and to do any credit repair or enhancement for loan qualifying purposes.

    Don’t be afraid to interview different Realtors. Call them up, tell them your looking for an agent, have them show you some homes, and ask them for some references. If an agent isn’t willing to do these things to get your business, they probably won’t be willing to much to keep your business either.


Can I afford to buy a house?

  • Ultimately this is a question for your mortgage broker, but if you’re paying rent, then you have a baseline for being able to afford a home. Keep in mind that you will be gaining equity, gaining tax right-offs, and gaining lifestyle freedom. Make sure you figure all of these values into your analysis. The conventional wisdom is that you need to be confident that you will be in the same general area for 3-5 years in order to recoup your closing costs and break even on your investment.

  • Also, keep in mind that you can use an FHA first-time homebuyer loan to by an apartment with up to 4 units, as long as you live in one of the units. So if you will be living in an apartment anyway, maybe you’d like to be buying it instead of just renting it. Give me a call or e-mail if you’d like to know more about this option.


What will my monthly payments be?

  • Ultimately this is a question for your mortgage broker. Typically your house payment has 4 pieces:
    1) Principal on the loan.
    2) Interest on the loan

    Your principal and interest payments can be figured with a mortgage calculator linked to here.
    3) Taxes and
    Your taxes in Humboldt County, California can be estimated at 1.1% of your purchase price.
    4) Insurance.
    Finally, insurance can run anywhere from $50/mo to $200/mo or more. Call your insurance agent to get an accurate estimate.


What if I have bad credit?

  • The only way to determine whether you have “bad” credit is to have your lender pull your credit report. Many of my clients have thought they had bad credit, only to discover they were fine; many others thought they had good credit, only to be discouraged when they saw their scores. If you do indeed have bad credit, your lender should be able to guide you through the “credit repair” process until you are able to qualify for a loan.


How much do I have to pay a realtor?

  • Realtors are most often paid a straight percentage commission (not salary or hourly wage) split 50/50 from the listing commission paid by the seller to the listing agent.  The listing agent signs a listing contract with the seller, who agrees to pay the Realtor a percentage of the purchase price as commission.  The listing agent usually splits that commission 50/50 with the agent who represents the buyer.  Normally, buyers don’t directly  pay their Realtor anything.


What financial documents will I need?

  • It varies from client to client, but generally a lender can “pre-approve” you as a buyer with 4 basic pieces of information:
    1) your income
    2) your minimum monthly expenses
    3) your credit scores and
    4) the amount (if any) you have saved up for a down payment.
    Once you have found a home, your lender will need documentation for the above information, often including pay stubs, bank statements, credit card statements and copies of other bills, perhaps income tax returns, and perhaps other documents.


How much will I need for a downpayment?

  • There are some loans that don’t require any downpayment. An FHA first-time home buyer loan currently requires 3.5% down payment. Conventional loans require 5% - 10% down payment depending on the buyers credit and other factors.


How do I find a lender?

  • Call me for recommendations, or ask trusted and knowledgeable friends and family. I highly recommend going with a local lender who is familiar with the type of homes in your area. Local lenders have a vested interest in their community, and rely on a good reputation for repeat business; consequently local lenders must provide competitive rates and good service to stay in business.When you are looking for a loan to buy a house, visit with at least 3 different mortgage brokers or lenders. Make sure you know 3 basic facts about your finances:

    1) your income
    2) your minimum monthly debt payments and
    3) how much you have saved up toward your home purchase.

    When you visit the first lender, they will want to pull your credit scores. Make sure you ask for a copy of your credit report, so that you can take the copy to subsequent lenders. The lenders won't be able to give you a Good Faith Estimate until you have a specific house you want to purchase, but make sure you get a "general" Good Faith Estimate, so you can see the typical loan fees each lender charges. Then each lender can tell you what your buying power is, and what their loan fees and terms are, and you can get a feel for the lender with whom you'd prefer to work.


How long does a loan last?

  • The typical loan runs for 30 years, although a 15 year mortgage is not uncommon, and a 40 year mortgage is available. California law prohibits a prepayment penalty after 5 years, so it’s not uncommon for home owners to refinance after that point.


Will my payments change?

  • Often home buyers will have their annual insurance payment and semi-annual tax payments paid by a servicing company, often their bank. The home owner pays monthly installments toward their insurance and taxes, along with their principal and interest payments, all rolled into one monthly mortgage payment. The insurance and taxes are collected in an impound account by the servicing company, and then paid to the insurance company and tax assessor when due. Each year, small adjustments are often made to the monthly insurance and tax payments to adjust for slight over- or underpayments the previous year, and this results in small changes to your monthly mortgage payment.

  • Some buyers will chose an adjustable rate mortgage (ARM), which has an interest rate that moves along with some indexing rate such as the Prime Rate. As the interest rate on an ARM moves up and down, the monthly payment goes up and down. Great care should be taken in using adjustable rate mortgages. Too often home buyers have committed to such a loan, only to discover that they could not make the monthly payments when the rate went up.


What happens if I buy a house, then I can't afford the payment?

  • Hopefully you can sell it and make enough profit to cover the costs of the sale, and move on with a small profit or breaking even. Some buyers have had to pay money to the escrow in order to sell their home.
  • If the home can’t be sold for the amount owed on the loan, many owners seek a short sale. Keep in mind; short sales are not short! They’re called short sales because the owner is selling for less than, or short of, the amount owed on the property. Normally the owners’ lender will forgive the difference, and the owners’ credit rating will suffer, but not to the same degree as if he had simply walked away and allowed the bank to foreclose on the home.
  • Foreclosure is when the owners’ lender assumes ownership of the home by a deed-in-lieu-of-foreclosure, or a trustee’s sale, or some other similar action. The owner is evicted if necessary, and no longer owns the home. His credit rating suffers, but he is not required to pay back the remaining balance on the loan.


Is there any government assistance?


Is this a good time to buy a house?


What are the risks of buying a house?


How will I know if something is wrong with the house?


What if I find out something is wrong with the house after I buy it?


As a buyer, can't I save money by approaching the seller directly?

Can a home buyer save money by approaching a home seller directly, without a real estate agent? A first time home buyer looking for a starter home in Arcata, CA called the other day, and we had a great discussion about first time home-buying. "Why would I want to use a buyers' agent," he asked, "when I can go to the seller, offer to save him the commission for the buyer's agent, and get a better deal?" I appreciate this client's honesty and directness! Many buyers and sellers of real estate don't really understand how the process works!

Typically, when a home owner wants to sell his home, he calls a real estate agent and signs an exclusive right-to-sell listing contract, in which he agrees to pay the agent a commission, 6%, for example, if he successfully sells his home. That real estate agent then enters the home into the local Realtor multiple listing service, or MLS, with on offer to split that commission.

Typically, in Humboldt County, California, that offer is a 50/50 split; both the seller's and buyer's real estate agents would get 3% each. Additionally, under California law, a real estate agent can't split his commission with someone who is not also a licensed real estate agent. So the listing agent will get a 6% commission, no matter who the home is sold to, and he will either split that commission with another agent, or keep it all to himself; he can't pass it on to a buyer who is not a licensed agent. So, if the seller is not able to pass any commission "savings" on to the buyer, why would a buyer want to try to represent himself? The seller has agreed to pay a buyer's agent through his listing agreement; why would the buyer want to turn down professional representation by a Realtor that's already paid for? My first-time home buyer has hired me, and we are looking for their first home as we speak!


This is all so overwhelming. What if I make the wrong decision?